Is Your Supply Chain Energy-Efficient?

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Is Your Supply Chain Energy-Efficient, or Are Costs Surging Out of Control?

The quest for energy efficiency affects every industry on earth. For supply chain operations — which have tons of moving parts, affect every product on earth, and see multiple partners collaborating — the challenge is even steeper and solutions more imperative. The good news for the industry is that creating an energy-efficient supply chain goes hand in hand with saving money.

Two Birds with One Stone

Consumers across the world have made it clear that they prefer to buy from “purpose-driven” companies that make it their business to protect the environment. The only problem is that consumers aren’t necessarily willing to shoulder the costs of energy efficiency. Some 69% of consumers indicate a preference for sustainable products, but only around 26% follow through on purchasing those products.

Therefore, chasing energy efficiency in the supply chain brings down two birds with one stone. Achieving and reporting energy savings signals to consumers that the brand is eco-conscious and takes the long view. It simultaneously cuts costs for that company and helps ensure that the price for other companywide sustainability efforts doesn’t get passed along to the consumer. General Motors saves millions of dollars a year thanks to a Texas truck assembly plant that uses wind power. Xerox customers save enough energy through the company’s ENERGY STAR program to light one million homes for a year.

Supply chain managers looking for a downside are almost certainly not going to find one.

Getting There

Findings from the National Federation of Independent Business show that energy expenses are a top-three expense for 35% of small businesses. The same report shows that:

Operating vehicles is the primary energy cost for 38% of small businesses.
Heating and cooling expenses are the most significant energy expense for one third of small businesses.
Operating equipment is the costliest use of energy for one fifth of small businesses.

These findings coincide with rising energy costs over the last several years. That makes this an ideal time to take control of the narrative and cut costs at the same time. Here are some of the major steps in the supply chain and how companies can realize considerable energy savings:

Freight-Carrying Vehicles

There are multiple paths to make vehicles in the supply chain energy-efficient and less costly to operate. One takes a slightly longer view than the other.

Some freight carriers, including UPS, are eyeing alternative fuels such as compressed natural gas (CNG) to bring costs down. The company says 40% of its ground fleet will run on fuels other than diesel and gasoline by 2025 — an increase from 19.6% in 2016. CNG vehicles can reduce greenhouse gas emissions by a modest 11% throughout the vehicle’s lifecycle.

It’s hard to ignore the further advantages of electric vehicles, however. Electric vehicles are far more efficient about using energy (90-95% efficiency) compared to internal combustion engines (17-21%). In trading gasoline for electricity, they also cost up to 10 times less to operate. They’re even cheaper to maintain over time thanks to fewer moving parts than other types of engines. Amazon wants to be net zero by 2040 and has ordered 100,000 electric vans from Rivian that will be phased into service between 2021-30.

Warehouses and Sortation Facilities

The average standard (not refrigerated) warehouse in the United States burns through 6.1 kilowatt-hours of electricity, plus around 13,400 BTU of natural gas, per year, per square foot. Heating and lighting systems alone account for around three quarters of this.

There are several ways to improve energy efficiency in these and other supply chain facilities:

Internet of Things: The IoT provides lots of solutions for automating lighting, cooling, heating, and powered industrial equipment when it’s not being used. General Electric claims its IoT energy management system, called “Current,” can save 70% on electricity expenses by using LED lights, sensors, and ongoing analytics.
ISO 5001 and other standards: Achieving standards such as ISO 5001 are largely optional, but they provide a helpful framework for companies that want to organize their energy efficiency efforts and achieve industry-agnostic, PR-boosting accreditations.
Energy and partner audits: Ongoing energy audits in a commercial environment can pinpoint equipment that is operating inefficiently and may be nearing the end of its life. It also keeps partners and vendors honest and invested in the mission.
Premises improvements: Adding insulation to buildings and shoring up gaps in windows, doors, and dock areas help eliminate the loss of conditioned air and keep energy usage and costs as low as they can be.

There is no doubt that renewable energy has a major role to play in the supply chain, too. Owners of commercial properties pay, on average, $1,950 per month for electricity. After installing a solar array, that kind of price tag can drop to $500 or even lower.

Last-Mile Delivery

This is every consumer’s favorite part of the buying process. It can also be one of the costliest, most energy-intensive, and frustrating parts of working within the supply chain. Part of the reason last-mile delivery is difficult, wasteful, and expensive is population density and congestion.

The UN estimates that 60% of human beings will live in cities by 2030. Additionally, the World Economic Forum indicates that the US economy lost about $87 billion in value in 2018 due to traffic congestion.

There is a huge opportunity for supply chain companies and freight carriers to address this situation thoughtfully. Doing so will also help these companies get ahead of recent and future bans on gasoline-powered engines in metropolitan areas. The impetus for these bans ranges from achieving energy independence and cost savings to meeting global and local climate change goals.

Companies involved in last-mile delivery are looking at ways to address each of these concerns — congestion, lost revenue, greenhouse gas emissions — simultaneously.

For instance, Germany found great success with a concept that hasn’t yet caught on widely in the States: The Germans have added thousands of pack stations to their cities. These are simple and secure containers, centrally located in a city, at which freight carriers can drop off a day’s worth of parcels in the morning. From there, bike couriers, and not gasoline or diesel trucks, take the packages on the last legs of their journeys.

UPS has a similar central drop spot in more than 30 world cities, including Seattle, with couriers on electric bikes picking up packages and delivering them within city centers.

All In

It’s not just possible to build an energy-efficient supply chain. It’s also essential for the planet, cost-effective enough to improve the bottom line and an attractive competitive advantage where public relations are concerned. With some strategic thinking and investments, just about any supply chain company can get in on this movement — and be better off for it.

Written by: Megan Ray Nichols, BOSS Contributor